Suggested Answers to Question —AFA INSTITUTE OF COST ACCOUNTANTS OF INDIA (Statutory Body under an Act of Parliament) Page 1 FINAL EXAMINATION GROUP IV (SYLLABUS 2008) SUGGESTED ANSWERS TO QUESTIONS JUNE 2013 Paper-16 : ADVANCED FINANCIAL ACCOUNTING AND REPORTING Time Allowed : 3 Hours Full Marks : 100 The figures in the margin on the right side indicate full marks. Part A questions are compulsory. Attempt all of them. Part B has seen questions. Attempt any five of them. Please: (1) Write answers to all parts of a question together. (2) Open a new page for answer to a new Question. (3) Attempt the required number of questions only. (4) Indicate in the front page of the answer books the question attempted. PART A : (25 Marks) 1. (a) In each of the cases given below, one out of four alternatives is correct. Indicate the correct answer (= 1 mark)and give workings/reasons briefly in support of your answer ( = 1 mark): 2x8=16 (i) SMITH LTD. had 1000000 equity shares outstanding on April 01, 2012. The average fair value per share during the year 2012-13 was ` 50. The Company has given share option to its employees of 2,00,000 shares at option price of ` 40. If net profit attributable to equity shareholders for the year ended March 31, 2013 is ` 21 lakh, what would be DILUTED EPS as per AS-20? A. ` 2.10 B. ` 2.06 C. ` 2.02 D. None of (A), (B), (C) (ii) VASUDA CONSTRUCTION LTD. undertook a contract on January 1, 2013 to construct a building for ` 70 lakh. The Company found on March 31, 2013 that it had already spent ` 52 lakh on the construction. Prudent estimate of additional cost for completion was ` 28 lakh. SContract value to be recognized as Turnover in the final accounts for the year ended March 31, 2013 as per AS-7 (revised) will be A. ` 52.5 lakh B. ` 50.4 lakh C. ` 45.5 lakh D. None of these (iii) BANSAL LTD. had acquired 75% share of NAVINA LTD. for ` 27 lakh. The Net Assets of NAVINA LTD. on the day are ` 24 lakh. During the year Bansal Ltd. sold the investment for ` 32 lakh and Net Assets of Navina Ltd. on the date of disposal was ` 40 lakh. The Profit/Loss on disposal of this investment to be recognized in consolidated financial statement is A. Profit ` 800 lakh B. Profit ` 200 lakh
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Suggested Answers to Question —AFA
INSTITUTE OF COST ACCOUNTANTS OF INDIA (Statutory Body under an Act of Parliament) Page 1
FINAL EXAMINATION
GROUP IV
(SYLLABUS 2008)
SUGGESTED ANSWERS TO QUESTIONS
JUNE 2013
Paper-16 : ADVANCED FINANCIAL ACCOUNTING AND REPORTING
Time Allowed : 3 Hours Full Marks : 100
The figures in the margin on the right side indicate full marks.
Part A questions are compulsory. Attempt all of them.
Part B has seen questions. Attempt any five of them.
Please: (1) Write answers to all parts of a question together.
(2) Open a new page for answer to a new Question.
(3) Attempt the required number of questions only.
(4) Indicate in the front page of the answer books the question attempted.
PART A : (25 Marks)
1. (a) In each of the cases given below, one out of four alternatives is correct. Indicate the
correct answer (= 1 mark)and give workings/reasons briefly in support of your answer ( = 1
mark): 2x8=16
(i) SMITH LTD. had 1000000 equity shares outstanding on April 01, 2012. The average fair
value per share during the year 2012-13 was ` 50. The Company has given share
option to its employees of 2,00,000 shares at option price of ` 40. If net profit
attributable to equity shareholders for the year ended March 31, 2013 is ` 21 lakh,
what would be DILUTED EPS as per AS-20?
A. ` 2.10
B. ` 2.06
C. ` 2.02
D. None of (A), (B), (C)
(ii) VASUDA CONSTRUCTION LTD. undertook a contract on January 1, 2013 to construct
a building for ` 70 lakh. The Company found on March 31, 2013 that it had already
spent ` 52 lakh on the construction. Prudent estimate of additional cost for
completion was ` 28 lakh. SContract value to be recognized as Turnover in the final
accounts for the year ended March 31, 2013 as per AS-7 (revised) will be
A. ` 52.5 lakh
B. ` 50.4 lakh
C. ` 45.5 lakh
D. None of these
(iii) BANSAL LTD. had acquired 75% share of NAVINA LTD. for ` 27 lakh. The Net Assets of
NAVINA LTD. on the day are ` 24 lakh. During the year Bansal Ltd. sold the
investment for 32 lakh and Net Assets of Navina Ltd. on the date of disposal was 40
lakh. The Profit/Loss on disposal of this investment to be recognized in consolidated
financial statement is
A. Profit ` 800 lakh
B. Profit ` 200 lakh
Suggested Answers to Question —AFA
INSTITUTE OF COST ACCOUNTANTS OF INDIA (Statutory Body under an Act of Parliament) Page 2
C. Loss ` 700 lakh
D. Insufficient Information
(iv) The fair values of Pension Plan Assets of ZOOM LTD. at the beginning and end of the
year 2012-13 were ` 5,60,000 and ` 6,20,000 respectively. The actual return on
Pension Plan Assets for the year was ` 63,000. If benefit payments made to the
retirees are ` 64,000, the employer's contribution to the plan during the year as per
AS-15 would be
A. ` 52,000
B. ` 61,000
C. ` 65,000
D. None of (A), (B), (C)
(v) MS. DEEPASHREE purchased 1000 shares in SPECTRUM LTD. at ` 600 per share in 2010.
There was a rights issue in 2013 at one share for every two held at price of ` 150 per
share. If Ms. Deepashree subscribed to the rights, what would be carrying cost of
1,500 shares as per AS-13.
A. ` 6,00,000
B. ` 6,75,000
C. ` 7,00,000
D. Data insufficient
(vi) SWIFT LTD. has an asset, which is carried in the Balance Sheet on 31.3.2013 at ` 600 lakh.
As at that date value in USE is ` 400 lakh. If the net selling price is ` 450 lakh,
Impairment loss of the Asset as per AS-28 will be
A. ` 200 lakh
B. `150 lakh
C. ` 50 lakh
D. None of (A), (B), (C)
(vii) PARTHAN LTD. reports quarterly and estimates an annual income of ` 200 crores.
Assume Tax rates on first ` 100 crores at 30% and on the balance income at 40%.
The estimated quarterly incomes are ` 15 crores, ` 50 crores, ` 75 crores and ` 60
crores respectively. The Tax expenses to be recognized in the last quarter as per
AS-25 is
A. ` 24 crores
B. ` 21 crores
C. ` 19 crores
D. Insufficient Information
(viii) BHARAT LTD. bought a forward contract for three months of US $ 150000 on 1st
March, 2013 at 1 US $ = ` 54.10 when exchange rate was 1US $ = ` 54.12. On 31st
March, 2013 when the books were closed forward exchange rate for two months
was US $ 1= ` 54.16. On 30th April, 2013 the contract was sold at ` 54.20 per US Dollar.
As per AS-30 the profits from sale of contract to be recognized in the Profit & Loss A/c
will be
A. ` 6,000
B. ` 8,000
C. ` 12,000
D. None of these
(b) Choose the most appropriate one from the stated options and write it down (only indicate
A,B,C,D as you think correct). 1x5=5
(i) The objective of AS-1 is
A. To prohibit any change in accounting policies
B. To ensure disclosure of accounting policies
C. To ensure that the effect of any change in accounting policy is adequately
disclosed
D. Both B and C above
(ii) As per AS-3 (Revised) Interest and Dividends received in the case of a manufacturing
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INSTITUTE OF COST ACCOUNTANTS OF INDIA (Statutory Body under an Act of Parliament) Page 3
enterprise should be classified as cash flow from
A. Operating activities
B. Financing activities
C. Investing activities
D. Both (B) and (C)
(iii) According to AS-28, estimates of future cash flow should not include
A. Cash flow from financing activities
B. Cash flow from the continuing use of the assets
C. Cash flow to be received for disposal of asset at the end of its useful life
D. None of (A), (B), (C)
(iv) M Ltd. holds 51% of N Ltd. N Ltd. holds 51% of P Ltd. and O Ltd. holds 49% of P Ltd. The
Related parties as per AS-18 are
A. M Ltd., N Ltd. and P Ltd.
B. M Ltd. and P Ltd.
C. N Ltd. and P Ltd.
D. M Ltd. and N Ltd. only
(v) According to AS-11 (Revised) the difference between the forward rate and the
exchange rate at the date of transaction should be
A. Ignored
B. Recognized as income or expense
C. Adjusted to Shareholders' interests
D. None of (A), (B), (C)
(c) (i) From the following information, determine the possible value of brand under potential
earning model:
Particulars ` in lakhs
Profit before tax
Income Tax
Tangible Fixed Assets
Identifiable Intangibles other than brand
Expected normal return on Tangible Fixed Assets
Appropriate Capitalisation Factor for Intangibles
650
150
1000
500
300
25 %
2
(ii) Mohan Ltd. purchased a plant for US $ 15000 on 31st December, 2012, payable after 4
months. The Company entered into a forward contract for 4 months @ ` 52.50 per Dollar.
On 31st December, 2012, the exchange rate was ` 51.10 per Dollar. How the
Company will recognize the profit or loss on forward contract in its books for the year
ended 31st March, 2013. 2
Answer 1.
(a) (i) C : `2.02
Number of incremental Shares issued for no consideration
[200000 x (50 – 4)] ÷ 50 40,000
Weighted number of Equity Shares: (1000000 + 40000) 10,40,000
Adjusted earning : `21 lakh
Diluted EPS: (21 lakh ÷ 10.40 lakh) = `2.02
(ii) C : `45.50 lakh
Contract work-in-progress (52 ÷ 80) lakh = 65%
Proportion of total contract value to be recognized as Turnover = 0.65 x `70,00,000
= `45.50 lakh.
(iii) C : Loss `7.00 lakh in Lakh
Proceeds from the sale of investment: 32.00
Less: Bansal Ltd.‟s Share in net Assets (40 lakh x 0.75) = 30.00
2.00
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INSTITUTE OF COST ACCOUNTANTS OF INDIA (Statutory Body under an Act of Parliament) Page 4
Less: Goodwill in the Consolidated Financial Statement:
`in lakh
Cost of Investment: 27.00
Less: Bansal Ltd.‟s share in net asset on the date
(24 lakh x 0.75) 18.00 9.00
7.00
(iv) B: `61,000
As per As – 15 the employer‟s Contribution
= the difference in values of the assets on opening and closing dates + benefit
payments – Actual Return on plan.
= (620000 – 560000) + 64000 – 63000 `61000
(v) B: `675000
Cost of original holding (Purchase) (1000 x 600) = 6,00,000
Amount paid for Rights (500 x 150) = 75,000
Total carrying cost of 1500 shares: `6,75,000
(vi) B : `150 Lakh
Recoverable amount is higher of Value in use `400 lakh and net selling price `450
lakh.
Recoverable amount = `450 lakh.
Impairment loss = Carried Amount – Recoverable amount
= `(600 – 450) = `150 lakh.
(vii) B : `21 Crores.
Tax Expenses : 30% on `100 Crores = `30 Crores.
40% on remaining `100 Crores = `40 Crores.
Total Tax = (30 + 40) = `70 Crores.
Weighted average Annual Income Tax Rate [70 ÷ 200] = 35%
Tax expenses to be recognized in last quarter:
35% on `60 Crores = `21 Crores.
(viii) A : `6000
Rs.
Sales Rate : 54.20
Less: Fair Value on 31.03.2013 : 54.16
0.04
Premium on Contract: US$ 150,000
Contract Amount:
Total Profit (15000 x 0.04) : `6,000
(b) (i) D
(ii) C
(iii) A
(iv) A
(v) B
(c) (i)
Calculation of Possible Value of Brand
Particulars `in lakh
Profit after Tax (650 – 150):
Less: Profit allocated to transible fixed assets:
Profit relating to intangible assets including Brand:
500
300
200
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INSTITUTE OF COST ACCOUNTANTS OF INDIA (Statutory Body under an Act of Parliament) Page 5
Capitalization factor 25%
Capitalized value of intangibles including brand 100x25
200
Less: Indentified intangibles other than Brand:
800
500
Brand Value 300
(ii)
Calculation of profit or loss to be recognized
In the books of Mohan Ltd.
Forward contract rate: `52.50
Less: Spot rate : `51.10
Loss: ` 1.40
Forward Contract Amount: $ 15,000
Total loss on entering into forward contract
= ($ 15,000 x `1.40): `21.00
Contract period: 4 months
Loss for the period 1st January, 2013 to 31st March, 2013, i.e.,
3 months falling in the year 2011 – 12 will be `21,000 x 4
3= `15,750
Balance loss of `5,250 (i.e., `21,000 – `15,750)
for the months of April, 2013 will be recognized in the financial year 2013 – 2014.
PART B : (75 Marks)
Attempt any five questions.
2. (a) ALEENA LTD. is in the business of manufacturing and export of its product. Sometimes
back in 2010, the Government put restriction on export of goods exported by Aleena Ltd.
Due to that restriction Aleena Ltd. impaired its assets. The Company acquired at the end of
the year 2006 identifiable assets worth ` 5,000 lakh and paid ` 7,500 lakh, balance is
treated as Goodwill. The useful life of the identifiable assets are 15 years and depreciated
on straight-line basis. When Government put the restriction at the end of year 2010, the
Company recognized the impairment loss by determining the recoverable amount of
assets at ` 3,400 lakh.
In 2012, Government lifted the restriction imposed on the export and due to this
favourable change, Aleena Ltd. re-estimated recoverable amount, which was
estimated at ` 4,275 lakh.
The amortization period of Goodwill to be taken as 5 years as per AS-14.
Required:
(i) Calculation and allocation of Impairment loss in 2010.
(ii) Reversal of an Impairment loss and its allocation as per AS-28 at the end of year 2012.
4+4=8
(b) From the following information of Neel Ltd., compute the Economic Value Added(EVA):
Share Capital ` 3,000 lakhs
Reserves and Surplus ` 5,000 lakhs
Long Term Debt ` 500 lakhs
Tax Rate 40 %
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INSTITUTE OF COST ACCOUNTANTS OF INDIA (Statutory Body under an Act of Parliament) Page 6
Risk Free Rate 8 %
Market Rate of Return 15 %
Interest ` 50 lakhs
Beta Factor 1.05
Profit before Interest and Tax ` 3,000 lakhs 7
Answer 2.
(a) (i)
ALEENA LTD.
CALCULATION AND ALLOCATION OF IMPAIRMENT
LOSS FOR THE ASSETS AFTER END OF YEAR 2010
Amount in lakh
Particulars Goodwill Identifiable
Assets
Total
Historical Cost
Accumulated / Amortization for 2007 to 2010
Carrying Amount:
Recoverable amount at the End of 2010 = 3400
Impairment of Loss (4167 – 3400) = 767
Impairment Loss allocated first to Goodwill and balance to
other Assets.
Carrying Amount after
Impairment loss.
2500.00
2000.00
500.00
500.00
NIL
5000.00
1333.00
3667.00
267.00
3400.00
7500.00
3333.00
4167.00
767.00
3400.00
(ii)
Reversal of an impairment loss and its allocation
For the assets at the end of year 2012
Goodwill Identifiable Assets Total
Carrying amount
Recoverable Amount
NIL 2782.00
(3400 – 618)
(WN – 7)
2782.00
4275.00
Excess of Recoverable amount over in accordance with Para 28.23.1
(Para 106 & 107 of As – 28)
The impairment loss to be reversed in 2012 will be as under :-
Carrying Amount of Asset in 2012 had no impairment loss in 2010 been recognized
(WN – 2) (3667 – 667)
Carrying Amount of Asset at the end of 2012 after Recognizing impairment loss in
2010 and depreciation for 2 years
ALLEENA Ltd. can increase the amount of the assets by (3000 – 2782)
1493.00
3000.00
2782.00
218.00
Hence Reversal of impairment loss to be reversed in 2012 by Crediting the same to Profit / Loss
statement is 218 Lakh.
Working Notes:
1) [(3400)/11 years] x 2 years. = `618 (lakh)
2) 3667 - 2x15
5000= 3667 – 667 = `3000 Lakh
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INSTITUTE OF COST ACCOUNTANTS OF INDIA (Statutory Body under an Act of Parliament) Page 7